Montana Utility Requests Solar Rate Change to Cover Costs

NorthWestern Energy, Montana’s largest electric utility, has requested a rate review for its net-metering residential customers.

Montana’s largest electric utility has requested a rate review for its net-metering residential customers.

Net metering allows residential and commercial customers who generate their own electricity, typically from rooftop solar panels, to sell any excess electricity they generate back to the utility, usually paid for in the form of a credit on their bill for any electricity they draw from the grid. States with net-metering laws often force utilities to pay retail rates for the electricity sold back to them by net-metering customers, instead of the wholesale rates they pay for electricity generated by other sources.

NorthWestern Energy (NorthWestern) reports there are approximately 2,100 net-metering customers on its system in Montana, mostly rooftop solar customers.

Give-and-Take

Net-metering systems provide energy to and take energy from the electric grid, requiring special equipment and additional costs, says Jo Dee Black, a spokesperson for NorthWestern.

“When a customer installs private generation, it changes the way that customer is using the energy grid,” said Black. “In Montana, the way it is working under the current system, a person with private generation, if they are hooked onto the grid and net-metering, if they generate more electricity than they can use they put that electricity back onto the grid and receive a credit for it.

“Later, if they don’t generate enough electricity, if they need more electricity than they are generating, they can pull electricity back from the grid and it is reflected on their bill as a credit if they had extra,” Black said.

Big Price Gap

In 2017, the Montana legislature directed NorthWestern to do a cost-benefit study of net-metering customers in the state. The study found NorthWestern was substantially overpaying its net-metering customers for the power they provide.

According to the report, the net value of the electric power that rooftop solar customers deliver to the grid when they are generating more power than they use is about 4 cents per kilowatt hour, which is just one-third of the retail rate at which net-metering customers are currently compensated.

To remove the discrepancy between the value of the electricity they provide and the price they are paid, and to account for the additional cost servicing net-metering customers add to the system, NorthWestern has asked state regulators to decrease the rate new residential net-metering customers will be credited for power, from about 11.4 centers per kilowatt hour to about 6.6 cents. NorthWestern is also asking regulators to approve a demand charge for net-metering customers, based on a customer’s demand as measured by a meter NorthWestern would install on buildings participating in net metering.

‘A Terrible Policy’

Net metering is bad economically and unfair to other customers, says Alexander Stevens, a policy analyst at the Institute for Energy Research.

“Net metering is a terrible policy, as it is essentially an indirect subsidy for distributed generation, usually rooftop solar,” Stevens said. “Utilities frequently end up paying more for electricity from net-metering customers than they would if they were to purchase wholesale electricity from power plants.

“The retail rates solar customers are being paid include not only the cost of producing the electricity but also the costs of planning, building, and operating the electrical grid, yetthey are not paying the utility for the use of the grid and accompanying costs associated with dumping their excess electricity on it,” Stevens said. “The costs net-metering customers impose on the system are then shifted onto all of the other ratepayers, yet a 2018 Berkley National Laboratory report found the average adopter of rooftop solar had an income 50 percent higher than people who do not install rooftop solar.”

To End Cost-Shifting

The goal of NorthWestern’s rate case is for the payments to reflect the true cost each customer imposes on the system, making the rates equitable for all customers, says Black.

“The costs associated with maintaining the energy grid are fixed,” said Black. “The way net meters use the grid imposes different costs on the system than those without net metering.

“Because of the way rates are presently structured, NorthWestern Energy Montana customers who net-meter are paying only 65 percent of the cost to allow them to interact with the energy grid,” Black said. “Under the current rate, these costs are shifted to other customers, while the rate we’ve proposed going forward would better ensure each class of customer is paying more of the true cost of service.”

‘Adopt Retail Choice’

NorthWestern’s proposal would be good for the great majority of Montana’s energy users, Stevens says.

“The proposed change will likely make investing in rooftop solar less attractive in Montana because it would require rooftop solar customers to pay the costs of allowing them to dump their excess electricity on the grid,” Stevens said. “This is great news for customers without rooftop solar, because it means, going forward, new producers of rooftop solar will not be able to pass those costs on to them.”

Stevens says opening up the electric power market to competition is an approach Montana could take that would do more to reduce residents’ and businesses’ energy costs.

“If Montana were to adopt retail choice in their electricity markets, it would sort of solve this problem because then people could just choose to purchase electricity from different providers, who would compete based on price, among other factors,” said Stevens.